Congress Not Protecting Mortgage Consumers Any Better

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The Democratic leadership in Congress has always claimed the moral high ground on consumer protection issues. Now that they have the power, you’d think they would exercise it. But as we saw this week in passing HR 1728, the “Mortgage Reform and Anti-Predatory Lending Act”, they knuckle under to banking and mortgage industry pressure passing watered down versions of consumer protection laws rather than the tougher versions they used to get re-elected.

H.R. 1728 passed the House May 7th mostly unnoticed by those outside the mortgage industry. But let me tell you, those inside the industry were watching this like a hawk. When it comes to mortgage regulations, the battle always pits corporate bankers versus small business mortgage brokers.

The banking lobby has more money and influence, so it’s a little like David vs. Goliath. But the mortgage bankers have a more vocal membership base in the National Association of Mortgage Brokers (NAMB).. When they rally and use the “killing small business” defense, then can occasionally heave a lucky stone.

Don’t get me wrong…having NAMB or the bankers win is usually bad for consumers. But I like underdog stories or at least, a little “equal opportunity” legislative leveraging.

Cases in point

At the last minute, NAMB got the troops rallied just in time to water down some RESPA disclosure requirements. The original bill would have made the originators show clearly with application disclosures the amount of yield spread premium income they derive from the proposed loan.

The bankers were all for this, since they were opted out of the requirement, hence banks loans would “appear” cheaper. But wisely, NAMB started a letter/email/phone campaign for everyone to call their Congress person and complain about the “destruction of small business”.

It worked! New mortgage disclosure requirements will have to wait for another day! Hooray!

Wait a minute…is this good? Why am I cheering just because the brokers beat the bankers? The consumer is still getting beat up by both camps and Congress is allowing it.

Now for a case involving bankers. The original bill provided for the bankers to maintain a 5% ownership interest in all loans sold through secondary marketing channels, so they would have a steak in approving only viable loans in the future.

This seemed like a good idea to me. If it were in place when subprime loans came along, the underwriting would have been a lot tougher. Liar loans would have been an idea that got laughed out of the room.

Bankers put their lobbyists to work killing the idea. Chalk up a victory for them too.

So the American people get a bill that neither reforms the mortgage industry nor protect consumers. Even after the all the crazy loan programs, predatory lenders, and the subsequent mortgage and foreclosure crisis caused by the same, we get nothing.

Sorry, I almost forgot…

We get to bail them out with $2 trillion dollars.
We get to watch our home values drop 40% in 2 years with another 20% coming.
We get to suffer massive job losses as the housing crisis wrecked the economy.

Well, I really didn’t expect Congress to protect consumers any better under Obama versus Bush. But I’ll bet a lot of you did.

I thought you should know it’s just not happening…

Until next week…

About Author

Rob K. Blake, a 15 year veteran of the mortgage industry, is a renowned public speaker, author, and former radio talk show host. His blog,, is dedicated to educating mortgage consumers, mortgage providers, and investors about both mortgage and housing markets.

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